Employee owned business are raising in
popularity with some of the world's largest companies.

The premise of employee ownership plans
(or ESOP) is the company’s workforce is provided with ownership interest in the
company, most commonly through stock ownership. The more sophisticated
companies participating often grant the ESOP fund with no upfront cost to the
employee.

The idea, employee owned businesses, is
pretty basic; building off of the believe that when a person is working for
themselves the work produced is of better quality. Focusing that believe at a
company level relates to, a business is more successful when the work is done
within the business as opposed to be done by outsiders.

Employee stock ownership plan work like
this: Employees are paid shares as part of work performed. The shares are then
placed in an ESOP trust until the day comes that the employee retires or moves
on to other ventures. In that event employee owned businesses either buy back
the shares and redistribute them or void them entirely.

Make no mistake, employee ownership plans
are formed in a way that prevents hostile takeovers and, more often than not,
prevent the workers from acquiring too much of the company’s stock.

An ESOP fund presents a wide variety of
advantages to employee owned businesses. Aligning lower compensation rates and
freeing up company cash flow, all the while, increasing loyalty and reducing
staff turnover is every company’s dream. All obtainable through employee
ownership plans, with the added benefit of increasing employee job
satisfaction.

The advantages for the employee or no
less impressive. ESOP funds form a bond between employee engagement and
employee involvement.This allows the opportunity for employees to have a
substantial impact on decisions regarding products and business processes.

Just like everything else, employee owned
businesses also have their downside; for both the workers and for the company
itself.

Imagine you land a great position with an
established ESOP fund. All the terms seem reasonable and you’re working toward,
what appears to be, a great retirement plan. This is your first experience with
employee owned businesses so you’re eager and dive right in. Over the years of
service you receive more shares, however each share actually lowers your
ownership percentage within the employee owned business. At some point you notice the share price has
not increased for an extended period of time, which of course directly affects
your retirement package.

The logical effects of that type of
common scenario within employee owned businesses is a significant decrease in
morale and retention. This is where employees may decide it’s better to cash in
their shares by resigning. If only a handful of employees did just that, a
shockwave of negative perceptions about employee owned plans, within the
company, could trigger a domino effect of equal or greater reactions. That is
one of the worst case scenarios on the business end of maintaining employee
owned plans.

For the individual, the worse case
scenario would be losing their entire investment, It’s easier than you would
think. When an ESOP fund is not properly structured, it’s the employee that is
taking all of the risk of employee owned businesses. If by some chance the
company is assigned a court appointed administrator (aka: going into
administration), The ESOP fund is lost and so is the employee's investment.

When done correctly, employee owned
businesses can and do work well for both parties. The positives outweigh the
negative by far. If you’re thinking about joining a company or the company
you’re currently working for is discussing employee owner plans, make sure to
ask the hard hitting questions.

Do you have experience with employee
owned businesses? We’d love to hear them, comment and share!